Justice Department launches investigation into merit aid talks

Higher education officials often catch flak for being too deliberative when action is needed, and it looks like that tendency toward talking could be getting them in trouble.

The U.S. Department of Justice sent a letter last month to several private colleges saying the department opened an investigation into a “possible agreement among colleges to restrict tuition discounting and prevent colleges from changing or improving financial aid awards to individual students,” a move that the letter said would be in violation of federal antitrust regulations. News of the department's letter was first reported Monday by The Chronicle of Higher Education.

The letter cites a session[1] at the Council of Independent Colleges’ 2013 Presidents Institute in January entitled “Collaborative Efforts on Student Aid and Admissions Policies: A Report on Progress, Prospects, and Possibilities” in which a group of private college presidents discussed potential ways to limit the use of non-need-based aid and shift money toward need-based aid. One approach discussed was seeking to expand an exemption the permits discussions on aid policy among colleges. Currently that statute only allows a small group of colleges[2] that admit students without considering financial need and award aid only on the basis of need to get together to discuss common principles of financial aid.

The Justice Department’s letter also asks institutions to preserve documents and information related to “proposed or actual agreements or understandings among colleges not to change financial aid awards or the amount of money that students receiving financial aid will pay to attend college” and “communications with other colleges or associations, or their representatives, or communications to your employees or other representatives of your college about any proposed or actual agreements or understandings among colleges not to change financial aid awards or the amount of money that students receiving financial aid will pay to attend college.”

While the department’s letter seems to hint at some form of agreement, several administrators involved in January’s session said they know of no agreement between colleges and that they were confused about why the department launched the investigation. A spokesman for the Department of Justice did not return a request for comment on deadline.

If no type of agreement between colleges has been struck, and the department’s investigation is based only on the discussions that took place at January’s CIC meeting, college administrators say the department is misunderstanding the nature of those discussions.

“The purpose of that meeting was to try to figure out how we could influence Congress in some way” when the Higher Education Act comes up for renewal, likely in 2015, said one of the leaders of that discussion and one of the people to receive the department’s letter. This person, the president of a liberal arts college, asked not to be identified.

In recent years, some college presidents, most prominently outgoing Kenyon College President Georgia Nugent, have argued that the current prohibition against colleges working together to define aid guidelines works against the goals of access and affordability, since it drives colleges to spend more money on merit aid in competition for students. And much of that merit aid isn't necessarily for the most meritorious students, but is assistance to middle- or upper-class students designed to influence their choice of institution.

Nothing in the current law prevents colleges from unilaterally moving money away from merit aid toward need-based aid, but college administrators fear that if they do so, they will lose students to peer institutions that continue to award merit aid. In a 2012 survey of college and university presidents[3] by Inside Higher Ed, about 37 percent of presidents said they would be willing to eliminate non-need-based aid if their competitors did so.

January’s meeting was the continuation of a discussion that has been going on since at least winter 2011, when Nugent led a similar discussion[4] at a CIC presidents meeting about how to limit the use of non-need-based aid.

Since then, the movement has gained little visible momentum. Nugent even expressed some frustration at January’s meeting about the lack of interest other presidents had shown in addressing the issue. “The merit wars are both wrong and destructive; is a game of chicken the most responsible way to manage our institutions?” she said then. “There’s an understandable fear of unilateral disarmament. The question is, can we band together to defend what we think is right?”

A document circulated at the January meeting, referred to as a “statement of principle” at the meeting, might have been misconstrued by the department as a pledge, one college president said, leading to the investigation.

The document was drafted by John McCardell, the University of the South's vice chancellor (the title given there to presidents). McCardell said the document was intended as a summary of a conversation among a group of presidents, with a conclusion being that the presidents could not do anything at the moment. He was not aware that the document would be part of January’s CIC meeting, which he did not attend.

A spokesman for the University of the South said the college received a letter from the department. "We will of course comply with the letter’s requirements and will work with the Department to address its questions," the spokesman said.

Lloyd Thacker, executive director of the Education Conservancy, said conversations so far have been limited to discussion about ways to change the federal statute to allow for a broader exemption to the antitrust. The document circulated in January’s meeting was designed to lay out what institutions might seek to discuss and agree upon if the law were changed to allow for greater collaboration.

David Warren, president of the National Association of Independent Colleges and Universities, said he has had “preliminary and exploratory” conversations with the Department of Justice – at the invitation of an assistant attorney general – about creating a “business review letter” process by which groups of institutions would seek approval to have discussions on particular topics. Through that process, groups of institutions would declare what they would like to discuss, provide data to the department about why they want to do it and explain who would be involved.

No institutions have expressed formal interest in going through that process.

In April, the House Committee on Education and the Workforce issued a letter calling for ways to “Increase college accessibility, affordability, and completion,” among other objectives, during the renewal of the Higher Education Act, which could take place over the next few years. Warren said his association will work through that process to modify the current exemption to potentially make such communications possible.

While Thacker and others say the current rounds of talks have been focused on legislation, not all of the discussion about aid practices has focused on changing the law. At the original 2011 CIC meeting, presidents heard from[5] Thane D. Scott, a lawyer who argued in support of the Massachusetts Institute of Technology in an antitrust case in the 1990s, when the department targeted a group of institutions known as the "overlap group" that compared aid offers of commonly accepted students. At the 2011 meeting, Scott said that the current law gives presidents more latitude to discuss policies than they previously assumed, according to presidents in the room. Scott did not return a request for comment Monday.

The Annapolis Group, a consortium of liberal arts colleges, was supposed to have a discussion about ways to limit merit aid, but the discussion was scrapped after the letters were received. “People are even leery of talking about how we can alter this exemption,” said the liberal arts college president who declined to be named. “And the evidence of that is the cancellation of the session this afternoon.”

Thacker said the investigation could help the movement to limit merit aid by clarifying exactly what it is that he and others are trying to achieve, which he says is finding a way to change the current law. “I look at this letter as an opportunity to clarify what’s at stake and reiterate why it’s important for college presidents to try to open that door,” he said.